Lazard Global Hexagon - Lazard Asset Management

SNAPSHOT
Lazard Global Hexagon
Strategy Inception
June 2010
Exposure
Long 50%–100%
Short(80)%–(40)%
Net Exposure (30)%–60%
What is Lazard Global Hexagon?
Lazard Global Hexagon is a long/short equity strategy that seeks to achieve long-term capital
appreciation by investing in attractive opportunities around the world, including emerging
markets. The investment approach utilizes bottom-up fundamental stock selection driven by
Lazard’s global research resources and adheres to an investment philosophy that places risk
management and capital preservation at its core.
Gross Exposure 90%–180%
Why Invest in Lazard Global Hexagon?
Characteristics
• Seasoned investment team combined with Lazard’s large pool of equity research capabilities
Number of Long Holdings
30–60
• Seeks to deliver better performance with lower volatility than the comparable hedge fund
index, while protecting capital on the downside
Number of Short Holdings
10–50
• Defined and repeatable process based on bottom-up analysis, value-driven investing and
robust risk management
Total Number of Holdings
40–110
Positions
Top stock long positions 2%–4%
Top stock short positions 1%–2%
• Seeks multiple sources of return from a global opportunity set, including emerging markets,
as well as across many sectors and market capitalizations
Investment Team
The Lazard Global Hexagon strategy is managed by Jean-Daniel (JD) Malan, who has over
14 years of experience in managing long/short and long-only portfolios at Lazard as well as
BlueCrest. JD is supported by a Research Advisory Team consisting of Robin Jones and
Mark Little.
Regional Inputs
Lazard Global Hexagon Fund
Sydney,
Australia
Portfolio Manager/Analyst
Special Inputs
Hedge
Funds
New York,
New York
Jean-Daniel Malan
Global
Thematic
Tokyo,
Japan
Research Advisory Team
Emerging
Markets
Robin Jones and Mark Little
London,
United Kingdom
Consumer
Financials
Health Care
Industrials
Global
Small Cap
Power
TMT
Sector Inputs
The portfolio characteristics are for informational purposes only and are subject to change.
Jean-Daniel Malan
Director, Portfolio
Manager/Analyst
Jean-Daniel Malan is the Portfolio Manager/Analyst of the Global
Hexagon Fund. Jean-Daniel re-joined Lazard in 2008 after working as a Hedge Fund Manager for two years at BlueCrest Capital.
He originally joined Lazard in 1998 as an Equity Analyst and then
worked as a Portfolio Manager for European Equity. Jean-Daniel
studied at Dauphine University and is a “Maitrise” of Economics and
Finance. He is a native French speaker.
Investment Process1
The Lazard Global Hexagon strategy seeks to invest long in companies that the Portfolio Manager/Analyst believes have high
sustainable or improving financial productivity and compelling
valuations, and to sell short companies that possess the opposite characteristics. The strategy primarily invests in global equity securities,
including emerging markets securities.
The Investment Manager employs six steps in the investment process for the strategy: identify candidates; quantify the opportunity;
isolate the desired risk; build strategies; transact and monitor, and
monetize value.
Identify
Candidates
Quantify the
Opportunities
Monitize
the Value
Lazard Global
Hexagon Fund
Investment Process
Transact
and Monitor
Isolate the
Desired Risk
Build
Strategies
1. Identify Candidates
2. Quantify the Opportunity
Financial Productivity: What do we get?
Return on Equity, Cash Return on Capital Invested,
Operating Margins
The strategy seeks investments that offer asymmetric risk of upside
potential and downside risk in order to meet performance objectives.
Fundamental Research
Longs
A. Valuing a company: Determine a price target
• Proprietary Cash Return on Capital Invested (CROCI) model
• Historical valuation bands
• Peer group comparison
• Sum of the parts
B. Quantify the potential downside risk
• Analyze worst case scenarios
Shorts
Valuation: What must we pay?
Price/Earnings, Price/Book,
Price/Cash Earnings, Price/Sales
• Stress test assumptions:
— Return Analysis
— Valuation Analysis
What do we look for in
Longs?
What do we look for in
Shorts?
• Strong fundamentals
• Weak fundamentals
• Superior business models
• Flawed business models
• Undervaluation
• Accounting problems
• Catalysts
• Strategic mistakes
The strategy seeks to generate ideas from a variety of different
sources, including proprietary screening techniques, selected third
party research, and Lazard’s global investment resources. Constant
dialogue between the investment team and the various research specialty teams also leads to investment ideas.
— Investment Risk Analysis
— Analysis of Catalysts
Lazard Global Hexagon
3. Isolate the Desired Risk²
5. Transact and Monitor
Individual securities are classified in terms of desired and undesired
risk, i.e., as absolute, market-relative, sector-relative, or pair trade
ideas. We then may seek to hedge any undesired risk through an
appropriate instrument, such as, a market index future, a sector index
future, or a single-stock long or short hedge.
The Investment Manager uses a range of proprietary portfolio management and risk management tools for monitoring purposes. Live
performance and portfolio attribution are broken down in a variety
of formats to enhance understanding of the performance trends and
provide early signals of potential issues or opportunities.
Strategy Buckets
Pair Trade
• Fundamental or hedging position using a single stock
Risk Management is a two-level process between the investment
team and the risk management group. Risk is managed internally
through constant monitoring by the investment team. In addition,
the Lazard risk management group provides independent oversight
and analysis.
• Ex. Single stock long vs. short
Diversification
A typical total of 40–110 positions seek to
minimize the impact of stock-specific risk.
Portfolio
Liquidity
Liquidity levels will be dependent on prevailing
market conditions. The team seeks to invest in
securities that are sufficiently liquid.
Beta Analysis
The team evaluates how the portfolio’s stocks
behave in both up and down markets and utilizes
beta-adjusted market exposures.
Real-time
Attribution
The team measures attribution real-time by
country, by sector, by investment theme, and by
type of risk.
Simulate and
Beta Test the
Portfolio
The team constantly back-tests and runs model
portfolios to stress test the existing portfolio and
new ideas.
Internal/
External Risk
Analytics
The team and the quantitative team utilize internal
and external risk systems allowing for daily
monitoring of exposures, beta analysis, valuations,
etc. Systems used include Barra, RAMPRO, and
Style Research. Lazard has an independent Global
Risk Management team based in London and
New York, which is constantly monitoring the key
risk metrics of the portfolio.
Market Relative
• Hedging risk of general market moves
• Ex. FTSE 250, QQQ, Brazilian Bovespa Index
Sector Relative
• Hedging risk of general sector moves
• Ex. OSX oil service sector index, custom baskets
Options
• Hedging specific investment risks using options strategies
• Ex. Call/put spread, risk/reversal
Absolute
• No hedge is desired
• Ex. Long airline stock without oil price hedge
4. Build Strategies
The portfolio is diversified across a number of positions. Trades are
categorized by strategy type. The investment team can view the
portfolio in real-time by investment theme or strategy.
For informational purposes only and subject to change.
Lazard Global Hexagon
6. Monetize the Value
Sell discipline informed by
Technical Analysis
Sell decisions triggered by
• Use of various technical indicators and
chart patterns to improve timing on
entry/exit
Price Targets
• Monetization strategies used when price
targets are reached or we believe
investment thesis is played out
Benchmarking
Monetize the
Value
• Constant benchmarking of new ideas vs.
existing ones to determine if more
compelling opportunities are available
Invalidation of Investment Thesis
• Strict sell discipline used when we believe
an investment thesis no longer holds true
Assessment of Investment Thesis
• Dynamic reassessment of the investment
thesis according to new data points
A strict sell discipline drives monetization of value and validation of the opportunity set
Notes
1 Information is provided for illustrative purposes only. The investment process illustrated above is neither static nor sequential, but ongoing.
2 The type of hedging instruments shown are for informational purposes only and are subject to change. There is no guarantee that the hedging instruments will achieve the
desired results. The securities identified above are not necessarily held by Lazard for all client portfolios and should not be considered a recommendation or solicitation to purchase or sell any security.
Important Information
Originally published on May 24, 2012. Revised and republished on August 29, 2013.
An investment in any alternative investment is speculative, involves a high degree of risk, and may lose value at an accelerated rate. Privately offered investment vehicles (“hedge
funds,” which includes “funds of funds”) are unregistered private investment funds or pools that invest and trade in many different markets, strategies, and instruments. Hedge
funds generally are not subject to regulatory restrictions or oversight. Opportunities for redemptions and transferability of interests in hedge funds are often restricted so investors
may not have access to their capital if and when it is needed. Typically, there is no secondary market for an investor’s interest in a hedge fund. The fees imposed on hedge fund
investments, including management and incentive fees/allocations and expenses, may offset trading profits. An investor should not invest in any hedge fund unless he or she is
prepared to lose all or a substantial portion of his or her investment. These and any other risks involved in an investment in any hedge fund should be considered carefully before
an investment is made.
The performance of the strategy is largely dependent on the talents and efforts of certain individuals. There can be no assurance that Lazard Asset Management LLC (“LAM”)
investment professionals will continue to be associated with LAM and the failure to retain such investment professionals could have an adverse effect on the strategy.
The strategy may leverage its investment positions by borrowing funds from securities broker-dealers, banks or others. From time to time, the strategy may borrow significant
amounts to take advantage of perceived opportunities, such as short-term price disparities between markets or related securities. Such leverage increases both the possibilities for
profit and the risk of loss.
The strategy may take short sale positions. Short selling can, in some circumstances, substantially increase the impact of adverse price movements on the strategy’s portfolio. A
short sale creates the risk of a theoretically unlimited loss, in that the price of the underlying security could theoretically increase without limit, thus increasing the cost to the strategy of buying securities to cover the short position.
The strategy is subject to a number of actual and potential conflicts of interest involving LAM and its affiliates. LAM and its affiliates provide investment management services to
other investors whose investment objectives may be similar to, or different from, the investment objective of the strategy. The directors, members, officers and employees of the
strategy, LAM and its affiliates may buy and sell securities for their own account or for the account of others. The investment manager may receive an incentive allocation and such
a compensation arrangement may create an incentive to make investments that are riskier or more speculative than would be the case if such an arrangement were not in effect.
The strategy invests in securities of non-U.S. companies which trade on non-U.S. exchanges. These investments are denominated or traded in currencies other than U.S. dollars
involve certain considerations not typically associated with investments in U.S. issuers or securities denominated or traded in U.S. dollars. There may be less publicly available
information about issuers in non-U.S. countries that may not be subject to uniform accounting, auditing and financial reporting standards and other disclosure requirements comparable to those applicable to U.S. issuers. Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Emerging Market
securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities
markets of emerging market countries can be extremely volatile and performance can also be influenced by political, social, and economic factors affecting companies in emerging
market countries.
The information and opinions presented does not constitute investment advice and has been obtained or derived from sources believed by Lazard to be reliable. Lazard makes no
representation as to their accuracy or completeness. All opinions and estimates expressed herein are as of the published date unless otherwise specified, and are subject to change.
Lazard Asset Management LLC • 30 Rockefeller Plaza • New York, NY 10112 • www.lazardnet.com
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